Managing Your Money : In Kids, Instill Thrift by Making an Allowance : Experts say the sooner they learn about money, the better off they’ll be.


Andrew Hasbun, a San Marino 10-year-old, believes that that he understands consumer finance pretty well.

When he’s paid for household chores and odd jobs in the neighborhood, he stuffs his earnings into a gray metal box--the one with a combination lock that he keeps in his bedroom. There’s $46 in there right now. There’d be more if he and his brother hadn’t chipped in for Mega Man III, a $50 Nintendo game. But Andrew isn’t complaining.

“Saving is important,” he says, “because if you don’t save, you lose most of your money. You spend it on things you don’t really need.”

Arguably, Andrew is beyond his years in his grasp of money management. But experts say there is no reason why children can’t be taught--at a very young age--to appreciate both the buying power of money as well as the importance of saving it.


“The sooner kids learn how to handle money correctly in the marketplace and how to be an informed consumer, the better off they are as adults,” says James V. McNeal, a marketing professor at Texas A&M; University who has studied the economic behavior of children for the last 25 years.

McNeal says the changing American family structure--including two working parents and single-parent households--is foisting more responsibility for money on children, who are now being asked to shop for groceries and other household items while mom and dad are at work, or out of the picture.

The high cost of such childhood staples as jeans and sneakers is also forcing parents to make their children appreciate the direct relationship between work and spending power. Children who demand $120 Reebok Pumps and $50 fashion jeans are often asked today to chip in the difference between the cost of standard fare and the hot brand name of the moment.

And children can do it. According to a study completed earlier this year by McNeal, children between the ages of 4 and 12 had a record-setting $9.73 billion of their own money in 1990 from all sources. Of that total, McNeal said, children spent about 75% and saved the rest--about double the savings rate of three years ago. Although McNeal says the saving trend is healthy, he attributes it as much to the unprecedented amount of money children had at their disposal as to any massive shift in the financial habits of the young.


Many scholars and psychologists studying the consumer habits of children believe that kids still have much more to learn about money, and they worry that parents may be unnecessarily withholding this information for fear of putting too much emphasis on money too soon.

“Teaching kids about money does not breed a fanaticism about money,” says Martin Ford, an associate professor of education at Stanford University.

Still, some ways of teaching children about money are better than others:

- Experts advise putting children on an allowance as soon as they are able to understand the concept of quantity. A 5- or 6-year-old is not too young.

How much should a child get? There’s no magic number. “It should be big enough that the kid has a real chance to learn about how money works, but not so big that he can do some real damage,” Ford says.

Some parents use a guideline of 25 cents per week for every year of the child’s age. Others suggest $2 per week at age 6 and an additional $1 per year after that. There is no consensus, except that parents should be sensitive to their own economic situation as well as prevailing standards in their community. McNeal reports that the national average last year was $2.30 per week for children aged 4 to 12 years.

Rather than amount, the critical issue about allowances is that they should be doled out with no strings attached.

“An allowance is what is ‘allowed,’ ” says Linda Barbanel, a New York psychotherapist and columnist on children and money. “We’re allowing kids to learn and make mistakes with this money.”


Under this theory, an allowance should not include money for lunches or obligatory club dues, church donations or savings account deposits. To learn how to budget his money, Barbanel says, a child must have complete discretion over it.

Experts further recommend that parents not tie an allowance to household chores or use it to punish children for unwanted behavior. Assigning household chores is fine, but children should not believe that their allowance is payment, says Grace W. Weinstein in her book “Children & Money.”

She also recommends against reducing allowance payments whenever a child misbehaves. An allowance is strictly a learning tool--not a salary or a disciplinary threat.

* Open a savings account for the child. By the time a child is 8, he can learn from holding a savings account. If the child wants, he can make regular deposits from his allowance, or can put in extra money he receives as gifts or from working. Forcing a child to save, however, can be detrimental, Barbanel says.

Savings can be divided into two pots. Long-term savings, for college, a car or other expenses far off into the future, would go into a bank or other investments that would be generally off-limits to the child. But children should also be encouraged to save at home, in a jar or cigar box, for more immediate desires, such as fancy sneakers. Parents can ease the process by offering to match a child’s savings if he has a goal they support.

* Consider allowing a teen-ager to have his or her own checking account--or even credit card with a low credit limit. If the teen-ager is mature and sensible, Stanford’s Ford argues that a checking account and a credit card can teach valuable lessons to high schoolers. Of course, the keys here are knowing when the teen-ager is mature enough to handle this level of responsibility--and providing a keen level of parental supervision.


Want more information on teaching kids about money? Try:


* Zillions. This Consumer Reports publication, formerly Penny Power Magazine, is published every other month for kids ages 8 to 14. The price is $16 for a one-year subscription. Order by calling (800) 234-2078

* “You and Money.” This free kit geared to fourth, fifth and six graders is published by Fidelity Investments. Call (800) 544-6666.

* Young American Bank offers an activity book, “How to Teach Children About Money,” for $15, plus $2 for postage and handling. Write the bank at 250 Steele St., Denver, Colo. 80206.